The Basel III standards for international banking are set to take effect within months. And despite numerous attempts to clarify sections of the accord, there is still so much unknown about the impact the changes will actually have, said panelists at the Finance Credit & International Business Association (FCIB) Annual International Credit & Risk Management Summit in Prague.

Elisabeth Sutter-Becska, vice president, head of global export finance at Raiffeisen Bank International in Austria, says rising importance of the trade credit role and for funding costs, among other increased costs in general, should be expected. As such, trade creditors and their businesses should be preparing in a number of ways in the near-term: Reassess working capital management, consolidate treasurer operations, optimize payment streams, improve receivables management, shorten payment tenors when possible and diversify resources. Still, it is hard to plan actions because of how difficult it is to predict what will actually occur.

“Nobody can say what is going to come from the three regulation, and there are not studies that have determined what would be the affect on the real economy,” she told FCIB delegates.

Meanwhile, panelist Neil Ross, trade credit insurance profit centre manager EMEA, AIG Euopre Limited in the United Kingdom, also voiced concerns about potential confusion about what will actually happen.

“One of the things that strikes me, you have the Basel III rules, but it's up to each country to interpret the rules; each country has slightly different interpretation,” said Ross. “It makes it much more complicated.”

Ross added that credit insurance will likely play a a bigger role as banks are “under pressure to keep head counts down...Doing analysis on thousand of buyers is frankly not where the banks want to be right now.”

-Brian Shappell, CBA, CICP, NACM staff writer

In a meeting that followed the Finance, Credit and International Business Association’s (FCIB’s) Annual International Credit and Risk Management Summit, members of the European Commission promoted the purposes and potential for success of the European Late Payment Directive. Those many aren't convinced that setting harder limits on the amount of days government entities and debtor companies will actually cause positive change and trump local laws, especially in places where slow paying is an engrained culture, some see it as an important step.

“It’s the best thing to happen in credit management in a decade because now we have European [Union] support. That gives us higher profile as credit managers,” said Mark Harrison, chief executive of the Czech Institute of Credit Management during a panel during the FCIB event.

In an FCIB interview onTuesday, Antti Peltomaki, deputy director-general of the European Commission’s Enterprise and Industry Directorate-General, said he understands the those being skeptical over the speed of cultural change, but sees the Directive as a critical step in the right directions for credit-granting businesses. “It is good and important to have the legal framework...It is up to you whether you want to do something," said Peltomaki.

-Brian Shappell, CBA, CICP, NACM staff writer  
The extended version of this story, including more from Peltomaki, published in this week's edition of eNews, is available by clicking here.

At this week’s Finance, Credit and International Business Association’s (FCIB’s) Annual International Credit and Risk Management Summit in Prague, two FCIB members—Angela Bradbury, ICCE and Daniel Van Damme—were presented with its distinguished Service, Development and Growth (SDG) Award.

Bradbury, group credit and payable manager with Innospec, Inc. in the United Kingdom, and Van Damme, group working capital manager with Tessenderlo Chemie SA in Belgium, joined the short list of SDG award winners. Van Damme serves as the chairperson of the Chemicals Industry Group and Bradbury serves on FCIB’s European Advisory Council and is a frequent conference speaker, taking part in the Prague summit and scheduled to present at next week’s Credit Congress in Las Vegas.

“They have tirelessly worked to educate their staff, to really contribute and give back into the international credit community,” said Noelin Hawkins, FCIB director, Europe, The Middle East & Asia. “I can’t recall anyone working harder.”

The award is designed recognize the valuable contributions volunteers are making to further grow and develop FCIB’s member services and to encourage more people to serve. The first winner of the award, Mannes Westhuis, LL.M., CICP, Bierens Debt Recovery Lawyers, also eloquently described it as something that represents a win-win situation for today’s international credit-related professional: getting in touch with customers and information on leads, while “being socially and professionally responsible.”

- Brian Shappell, CBA, CICIP, NACM staff writer

All eyes have been on Spain when it comes to nervous businesses owners, credit professionals and other market-watchers wondering when the next European sovereign insolvency is going to occur. And while it would be overly optimistic to assume that danger wasn't imminent in Spain, a top four economy, by size, on the continent, another nation may beat it to default: Slovenia. At least that was the sentiment at FCIB's Annual International Credit & Risk Management Summit in Prague.

“Slovenia is far riskier than Italy or Spain,” said FCIB panelist Silvina Aldeco-Martinez, managing director of Risk Analytic Products, Standard & Poor's. She noted that, unlike Spain, it's not overall risk throughout many sectors; it's just massive problems in its banking sector.

Freddy Van den Spiegel, of BNP Paribas Fortis, agreed that Slovenia may slide into insolvency and that Spain faces many issues. Because of the nature of the problems and size/importance of its economy to the EU, Spain's filing, should it occur, would be a significantly bigger event. He said the prospects for Spain continue to generate pessimism because its high unemployment (25% among the young) shows little signs of improving because the nation doesn't have solid products and brands to make them competitive and, thus, pull themselves out of the rut. The big problem therein is that France, once hoped to help the recovery financially as much as Germany, holds so much Spanish debt.

“If it happens, we'll see what happened in Cyprus: panic,” the Belgian-based economist said. “If Spain gets into trouble, then France comes onto the radar”

All that said, Van den Spiegel still believes the European Union and the common currency will survive, but in a setting of more centralized EU power both in lawmaking and on the part of the European Central Bank.

-Brian Shappell, CBA, CICP, NACM staff writer

Off the strength of continued growth as a hub for service centers and more generalized outsourcing, nations in eastern Europe, Soviet Bloc countries until the late 1980s, are emerging as slightly bigger players in the business and credit world. However, the corporate information emanating from there often is not entirely trustworthy, said panelists at FCIB's Annual International Credit & Risk Management Summit in Prague.

FCIB panelist Elisabeth Sutter-Becska, of Raiffeisen Bank International in Austria, noted that problems with performing loans levels in Ukraine and Russia are increasing again after a few years of improvement. Fellow FCIB panelist Fabrice Morel, of Berne Union, noted there was a major spike in 2008 as well, one that showed the long-term stability of credit insurance companies in Europe in some ways, but that the four following years marked a time when issues had been mitigated in significant fashion.

The potential for another spike stems from the quality of information on the businesses in several eastern European nations. Kateryna Barabash, managing director and owner of IBcontacts, a Ukraine-based firm dealing in credit, legal and news services, said the information can be hard to analyze...if a credit manager can even get it at all.

“You have to realize there is a lot of information that is incorrect or out of date,” Barabash said, adding that a high level of nepotism plays into what is released by companies. “You have to verify this information with a buyer and your partner...don't rely just on existing database information.” Beyond that, she noted that perhaps the even bigger problem is getting data like financials since estimates of the rate of refusal for such requests tracks between “60% and 70%.”

In short, her sentiment was, if the company is not being transparent, they are very likely hiding something important in the grand scheme of creditworthiness.

-Brian Shappell, CBA, CICP, NACM staff writer

Those hoping for short-term optimism, especially on most member nations of the European Union, at the start of the content portion of FCIB's Annual International Credit & Risk Management Summit in Prague Monday got a bit of reality check from the Belgian-based economist serving as keynote speaker. However, he did note that the idea that there will be bumps, if not occasional “chaos,” doesn't mean things will always be bad between now and the increasingly far-off recovery.

Freddy Van den Spiegel, of BNP Paribas Fortis, said the global economy has largely experienced its chaos moment in the last several years since various bubbles burst in key nations like the United States and some in Europe. That said: credit professionals should not consider that moment to be something of the past.

“The chaos moment is still continuing; this is the world in which we are,” said Van den Spiegel. “But there is a natural chaotic nature of any system or human behavior. And you can't just hide until the storm is over.” As such, strong risk management practices are going to continue to grow in importance in credit departments, but they will also grow in difficulty.

Meanwhile, perhaps the biggest event that needs to happen, in Van den Spiegel's view, is the European Union finally moving towards a more united bloc on issues of banking and politics. That includes having a true “president” type figure as well as a European Central Bank that exists more like the Federal Reserve of the U.S. in scope. But politics may keep that on hold because of the the election in Germany, by far the strongest EU member, coming up in September.

Van den Spiegel noted that it was unlikely anything would happen before then because the current leadership backing plans to ease back on austerity elsewhere and essentially fund bailouts in places that have not been as fiscally responsible could raise the ire of German voters. But, he believes, the Merkel government will come around, assuming the incumbents remain in power.

“There are really no other solutions,” he said. “The hurdle is that austerity on countries that failed limits their ability to grow. If they cannot grow, they cannot recover. You need balance right now.”

-Brian Shappell, CBA, CICP, NACM staff writer

The financial troubles and subsequent attempts/talks of a second run at filing for municipal bankruptcy in Harrisburg, PA have taken many twists and turns. The latest wrinkle came this week in the form of the first-ever Securities and Exchange Commission charges of security fraud, charges the city in question has agreed to settle, against a municipality.

The SEC alleges the city’s officials made a series of “misleading public statements” regarding its financial condition in various places: its budget report, annual and mid-year financial statements, the mayor’s “State of the City” address. The agency noted that such failures of compliance and “misstated” information  left creditors with little in the way of reliable information when assessing the city, notably from 2009 through 2011.

“In an information vacuum caused by Harrisburg’s failure to provide accurate information about its deteriorating financial condition, municipal investors had to rely on other public statements misrepresenting city finances,” said SEC’s George Canellos. Harrisburg notably missed $13.9 million general obligation debt service payments on March 15.

In 2011, Harrisburg’s city council defied the wishes of the state and its own mayor by voting to file for Chapter 9 bankruptcy. Supporters of doing so said it would give the city leverage to renegotiate debt largely tied to a massively unsuccessful trash incinerator project, once so wrongly predicted to be a financial windfall for the city (the SEC listed debt from the project at $260 million), and provide more of a fair option to local taxpayers that didn’t want to take a hit out of proportion to that of investors. State and mayoral plans to sell off city assets such as parking garages and the incinerator operation, as well as raise taxes, were rejected by the council. Still, Harrisburg’s filing was rejected when a judge upheld a hastily-passed Pennsylvania law aimed at temporarily blocking third-level cities in the state from filing.
 
- Brian Shappell, CBA, NACM staff writer

The Finance, Credit and International Business Association (FCIB) and the U.S. Commercial Service of the U.S. Department of Commerce’s International Trade Administration (ITA) have signed a Memorandum of Understanding (MOU) to increase awareness in the U.S. business community, particularly among small and medium-sized businesses, about exporting and the tools and resources our organizations provide to help them succeed.

“We’re pleased to welcome FCIB as a partner in our efforts to strengthen the U.S. economy and support local jobs through expanding U.S. exports,” said Under Secretary of Commerce for International Trade Francisco Sánchez. “With more than 95 percent of potential customers living outside U.S. borders, it’s imperative that American companies of all sizes consider the benefits of selling their products abroad.”

The MOU builds on previous collaborations between FCIB and ITA, including the development of the third edition of ITA’s Trade Finance Guide: A Quick Reference for U.S. Exporters and a first-ever Spanish-language version of the guide, available soon. Written in plain and easily understood language, the Trade Finance Guide provides exporters of all sizes with what they need to know in order to use exports to grow their business.

“By working together, FCIB and ITA are making it easier for all U.S. companies to take advantage of the exporting opportunities offered around the globe. The Trade Finance Guide, which is now in its third edition and will soon be available to Spanish-speaking business owners, was only the first step in what will be a long line of collaborations geared toward unlocking world markets for businesses of all sizes,” said FCIB’s Director–Americas Marta Chacon, CICP. “FCIB is looking forward to acting as a portal through which exporters can find the tools and resources they need to effectively conduct international trade.”

Under the MOU, FCIB and U.S. Commercial Service’s network of worldwide offices will work together on marketing, education programs and events leveraging both entities’ expertise to help make U.S. businesses—and particularly small and medium-sized firms—more export savvy. Joint activities may include building awareness through outreach at trade shows, direct mail campaigns and online registration for resource support.

In 2010, President Barack Obama announced the National Export Initiative (NEI) with the goal of doubling U.S. exports by the end of 2014. The partnership supports this goal by educating U.S. exporters about the benefits exporting and expanding their exports to additional markets, and the public and private sector resources to assist them. FCIB joins several of the U.S. Commercial Service’s Strategic Partners who have connected more than 1,500 companies to federal export assistance.

- FCIB and the U.S. Commercial Service
 

The Third Circuit has long been perceived as the most efficient, and perhaps most filer-friendly, when it comes to corporate bankruptcies. Perhaps it's why the district is seen as the most likely choice for filings. However, the latest numbers from the U.S. Bankruptcy Courts note that business filings coming from the district place it only in third among the 11 districts.

Chapter 11 bankruptcy filings throughout the nation declined by more than 10% during a one-year period between the end of March in 2012 and this year. The total now sits at 9,811, down from March 2012’s 11,339. The total of all types of bankruptcies also dropped by more than 10% to 1.17 million. Still a tiny percentage overall, Chapter 9 (municipal bankruptcy) filings increased to 20 between March 2012 and March 2013 from 13 during the previous 12 months.

Within the numbers, the Ninth District (West Coast) far and away had the most filings for the period at 2,418, down significantly from the 3,188 last year. It was followed the Eleventh Circuit (FL, GA, AL) with 1,288 and the aforementioned Third Circuit (located in Delaware and including NJ and PA) at 1,213. The lowest total of filings, excluding Washington, D.C., came out of the Eighth District (AR, IA, MN, MO, NE, ND, SD) with just 317.

-Brian Shappell, CBA, CICP, NACM staff writer

It comes as no shock but the global slowdown has affected trade. The warnings have been sounded by nearly every global analyst as they have looked at the activity (or lack of it) in some of the major supplier nations.

Part of the challenge to Chinese growth has come from the fact that too many of the nations that usually buy from them are not in very good economic shape. Meanwhile, the U.S. consumer started to go into hibernation in the last month or so, resulting in a 3% drop in imports.

In recent days, there has been a high-profile disaster in Bangladesh – the collapse of a building housing several busy garment factories – that has alerted the casual observers of global trade patterns about conditions in many of these export nations being far less than acceptable. The collapse killed and maimed thousands and, suddenly, the companies that buy these items are backtracking and trying to reassure consumers that they are looking into the situation. It is unlikely that consumers will react all that strongly, but if demand is already stuttering a little, these are the tragedies that can push consumers over the top.

The export side of the equation has also shown some signs of strain. The rate of U.S. exports declined by 1% in March, and that contrasts with an overall rise of 4.3% in exports in all of 2012. There has been no significant change in the factors that have allowed the U.S. to become a more aggressive export nation in the last few years, but global demand is down. This has offset the advantages the U.S. had developed based on currency values and improved manufacturing productivity. The U.S. had been selling pretty consistently to the states in South America, but newfound problems in Brazil and Argentina have reduced their ability to keep buying the US goods.

One other important factor as far as U.S. import activity is the reduced demand for oil. Slower development of the economy has meant that there is less activity and, therefore, less need to buy it. That will be a shorter-term factor, and demand will increase as the economy rebounds. The longer-term trend is that the U.S. is steadily producing more of its own oil, reducing importing from other nations.

Going forward, the biggest disappointment is likely to be that China continues to struggle. The reality is that China is a linchpin in much of the global economic recovery. If China is not selling to the U.S. and Europe, it is not making enough money to buy commodities, raw materials and intermediate goods from nations like Australia, Indonesia and Thailand. If these nations are not selling to China, they don’t have the money to buy from the U.S. That pattern makes what is happening in China very important.

-Armada Corporate Intelligence
 

The National Association of Credit Management’s CMI for April 2013 for April 2013, available by Tuesday afternoon, is expected to report less than optimistic conditions, including more companies feeling the stress of the slow economy and failing to meet payment terms.
 
The release will illustrate that the Credit Managers’ Index (CMI) for April fell to levels not seen in over a year. Though still expected to be in expansion territory (above a level of 50), things are certainly heading in the wrong direction. The real damage to the CMI is expected to come from the unfavorable factors categories. To wit, the most dramatic declines are to be found in dollar amount beyond terms and amount of customer deductions.

“The collapse in dollar amount beyond terms signals that many companies have entered the danger zone,” said NACM Economist Chris Kuehl, PhD. “The sense is that many companies are now on the brink of real trouble, and if the economy continues to stall, there will be some overt business collapse in the next quarter or two.”

There are expected to be some positive notes, including a slight gain and stability, respectively, in the sales and new credit applications categories comprising the favorable factors index.

-NACM

The complete CMI report for April 2013, available by Tuesday afternoon, contains more commentary, complete with tables and graphs. CMI archives may also be viewed on NACM’s website.

It appears officials and legal representatives from a California community recently deemed eligible to file for municipal bankruptcy protection under tough California mandates may have forced previously uninterested creditors back to the negotiating table with its most recent legal victory.

It was reported this week that the city of Stockton and key creditors in its Chapter 9 bankruptcy case, the largest on record from a U.S. city, have told a judge they are willing to resume negotiations that previously failed. Stockton essentially wants concessions from some creditors to which they owe. Similarly, the community of Central Falls, RI also forced stakeholders to yield and take a “haircut” – in that case, public employees and retirees over pensions benefits – after its Chapter 9 began moving successfully through the courts there.

About a month ago, U.S. Bankruptcy Judge Christopher Klein ruled Stockton did meet the threshold to officially enter into municipal bankruptcy. The key pieces to the decision was that Stockton is, in fact, insolvent and that it went through the good-faith negotiation processes mandated by the 2011 California law designed to slow the number of such filings. While the judge didn’t dismiss the bondholders’ problem with creditors taking a haircut while Stockton continued to make full contributions to the state pension program (CALPERS), Klein did determine that an eligibility proceeding wasn’t the right time for such arguments to be made.

Stockton is among many U.S. cities, including several others in California, struggling to get out of crushing debt wrought by factors including expensive union contacts, pension payments and tax base shrinkage caused by the real estate collapse, for which Stockton once boasted the nation’s second-highest foreclosure rate.

-Brian Shappell, CBA, NACM staff writer

The coverage of the tragedy and those responsible for the bombing at the Boston Marathon grabbed the bulk of public attention for the last week, and rightfully so. As life returns to some semblance of normalcy for most of the country, however, the impact of such events will continue to be felt by business for quite some.

NACM Economist Chris Kuehl, PhD predicted that, for business, the incident will change everything from product shipments to relationships with foreign business contacts in regions often associated with terrorist activity. “There will be more screening and security of shipments. A lot more attention is already being paid to our shipping clients,” said Kuehl, who will talk about the impact of crime and terrorism on the global economy at Credit Congress next month.

Such events also speak to the importance of why credit professionals need to be prepared to defend one’s company against fraud attempts. While corporate credit fraud is difficult to tie directly to terrorism, Kuehl said that related groups use many of the same fraud and money laundering techniques as more traditional, U.S.-based crime outfits, and businesses still get hit with the consequences.

- Brian Shappell, CBA, NACM staff writer

For the extended version of this story including additional analysis from Kuehl and Gary Bares, of Verifraud and APG, check out this week's edition of eNews, available late Thursday afternoon.
 

The latest data from the Markit PMI survey tells a bleak story in Europe. That is not much of a shock, but it is nonetheless depressing, as there had been some faint hope that there would be stabilization at least. It is this kind of data that is feeding the anti-austerity troops and encouraging those who want to find some way to accelerate stimulus.

While the press and population have been disillusioned when it comes to its assessment of Francois Holland, it is worth questioning why France is so downbeat and critical. It is obvious that there are problems and reason for concern in France but, compared to many of its neighbors, the French are doing far better.

The country has a debt-to-GDP ratio of 90% -- Italy is at 125%, and the US is a little over 100%. The budget deficit is around 3.7% of GDP. While higher than the target set by the Hollande government, Britain is at 7.4%, and the US exceeds 5.5%. Meanwhile, the unemployment rate is uncomfortably high at 10.6%, but Spain is twice that. This is not to say that all is well in France, still the fifth largest economy in the world, but the ferocious sense of despair doesn’t really seem to be justified.

-Armada Corporate Intelligence

A new study by the United Kingdom-based branch of Dun & Bradstreet suggests updates the European Union Late Payments Directive already are having an impact on payment behavior, at least in Britain.

D&B’s statistics noted that British businesses borrowing on terms paid their bills on aggregate two days faster in 2012 than in the previous year. At an average of 17-days late, British businesses’ tardiness on terms reached a record level in 2011, said D&B. Directive updates in the EU, last done in summer 2011, represent an important legal development designed to ensure the payment of business-to-business invoices is conducted within 60 days, and public authority-to-business invoices within 30 days. In theory, it is a win for suppliers. But there some potentially conflicting fallout exists, as D&B noted:

"This legislation makes it easier for businesses to pursue payment, with debtors being forced to incur interest and pay an administration fee if they fail to pay for goods and services within 60 days for business and 30 days for public authorities.  Whilst it will help protect some businesses [suppliers], the updated Directive presents new risks for companies [customers] struggling to manage their finances and pay on time, due to the potential interest liability risk."

In addition, to assume the directive will drastically improve payment habits within the debt-struggling EU may be a bit of a leap of faith. Though talking about the potential for EU-wide changes to bankruptcy/insolvency laws not the Late Payment Directive, a point made by Thomas Voller, an attorney with Germany-based Voller Rechtsanwälte and member of EuroCollectNet, could be considered. This is the case in part because, as Voller put it, there really isn’t all that much unity, from a continuity sense and legal perspective, in the euro zone.

“There is a tendency in the European Law to try to unify the rules and to find a common applicable law for all European states in some areas,” he told NACM for the international bankruptcy-focused article “Moving Targets” in the May edition of Business Credit (available next week). “Obviously, this is extremely difficult, and it works only in some special fields.”

Whether B2B payment is one of those fields perhaps waits to be seen.

-Brian Shappell, CBA, NACM staff writer

Officials from the European Commission will be attending and exhibiting at FCIB’s Annual International Credit and Risk Management Summit at the Corinthia Hotel in Prague next month and will be hosting an information seminar on Late Payment Directive at the same venue following the conclusion of the FCIB conference on May 14 at the same venue.

A credit professional would have to be somewhat asleep at the switch to have missed the often negative news coverage in business publications and mainstream media about the struggles of Best Buy and JCPenny (JCP). The problems faced by the two companies and others like them, albeit to a lesser extent, warrant inclusion of department stores and “big box” retailers as industries to watch. As such, creditors are going to need to be mindful of warning signs coming from companies therein.

JCP’s business model, which featured a failed gamble on a campaign that ended faux discounting and coupons in favor of “real” pricing, and Best Buy’s struggle to overcome powerhouse online retailers like Amazon, and brick-and-mortar competitors like Walmart for market share are the source for their struggles. But an even bigger storm for retailers of this size and profile, as suggested by Bruce Nathan, Esq. of Lowenstein Sandler LLP, potentially looms in the not-too-distant future: rate hikes. Let’s face it, rock-bottom interest rates, and the economic malaise inspiring them, won’t last forever. “If your business model is troubled and you have a lot of debt, that’s going to be one big issue,” said Nathan. “When interest rates go up, the debt has to be refinanced. But a lot of these retail businesses are also badly overleveraged.”

And potential financial problems with such stores could have a domino effect as many of them serve as anchor stores designed to drive more foot traffic to other retailers in malls and shopping centers. Nathan noted that such a domino effect could also impact a commercial real estate sector that has already seen its share of hardships over the last half-decade. “You need to look for the warnings to be able to mitigate your risk,” said Nathan. “You want to be able to anticipate a bankruptcy well before the filing. And there’s so much more information out there now that wasn’t 20 years ago.”

- Brian Shappell, CBA, NACM staff writer
 
Catch Nathan in Bankruptcy Rumblings: Identifying and Mitigating Risk of a Financially Troubled Customer Headed toward Bankruptcy at Credit Congress on May 22. For more information on the event or to register, visit http://creditcongress.nacm.org/. 

On the heels of Mexico doing the same, the United States has come to an agreement with Japan clearing the road for the Asian nation to join the ranks of the Trans-Pacific Partnership, a key cornerstone of several nations’ respective trade agendas.

Still under negotiation, the TPP represents a greater interest in the "Pivot to Asia" in the southeast part of the continent that includes emerging economies like Vietnam, Singapore and Malaysia on the part of the three major North American powers as well as others like Peru and Australia. Nearly half of the upwards of $22 trillion in global economic growth between now and 2020 is expected to be forged in this region. A lack of FTAs is a part of the problem of why imports from North America and other participants in places like Chile and New Zealand have been dropping off there.

For the U.S.’s part, the agreement to allow Japan TPP entry includes, at least temporarily, it maintaining tariffs on Japanese vehicles – while a small percentage is levied on cars, trucks carry a penalty of up to 25% in part because of U.S. lobbies. There are also potential battles brewing between Japan and other nations because of perceptions that it is highly protectionist in certain industries, notably agriculture. In short, the inclusion of Japan in the TPP doesn’t necessarily raise the likelihood of easy adoption of the multilateral trade pact. To wit, several nations including Canada and Australia have yet to support Japan’s inclusion at this time, and its trade officials have voiced what they see as significant concerns.

-Brian Shappell, CBA, NACM staff writer

There are not many viable options for the recovery of Europe, so the pressure is now on France to join the Germans in repairing the damage to the European economy. But, by the looks of the most recent data, that is not something imminent.

The first quarter numbers for France are dismal, perhaps not quite as bad as many first thought likely, but nothing to suggest that France is going to be able to play a major role in the recovery anytime soon. The growth in the first quarter was just 0.1%, a hair above recession. The measures of business and consumer confidence are as low as they have been since the recession started in 2009, and the population has become utterly frustrated and disillusioned with the government of Francois Hollande. The slow growth has coincided with a serious scandal that has been undermining the reputation of a government that sought to set itself above the opposition.

There is no movement within the ranks of the consumer, as spending has diminished to nothing. The French economy is as dependent on the levels of internal consumption as the U.S. This is not a country that thrives on the export sector, as the Germans do. French business has long struggled to compete effectively on the global stage, and that has increased the reliance on the French household over the years. Right now, that household is in retreat on all fronts. There has been a dramatic reduction in the sales of new cars, appliances, clothing and even food.

Solutions to the crisis in France are hard to come by, as neither of the dominant parties perceivably have much to offer. Analysts look at France as too dependent on the internal market, but there is no easy way to make the country globally competitive. To export more effectively, the French would need to lower the cost of doing business, and that means radical labor reforms and regulatory changes that would not be popular in the country. French manufacturers have yet to embrace the world of technology, also limiting their export potential as well. The recovery of the domestic market is all about confidence-building, but this is at a low point for all. Reversing that malaise will require dynamic leadership and few expect to see anything like that from a scandal-ridden French leadership.

-Armada Corporate Intelligence

For more international business credit and economic news, check out this week's edition of eNews, available Thursday late afternoon (EST). NACM's eNews is available via email or through its website (www.nacm.org) inside the "Resources" pulldown bar.

For much of 2011 and 2012, Fitch Ratings tended to be a little quieter and less controversial than its colleagues in the so-called “Big Three” credit ratings agencies. That has changed somewhat this year with some of Fitch’s moves, the latest of which being the first downgrade to a Chinese rating this century.

Though Fitch affirmed China’s Long Term Foreign Currency Issuer Default Rating (IDR) at the top,  'A+’ level, the agency downgraded the Long-Term Local Currency IDR to 'A+' from 'AA-'. It is the first downgrade of a Chinese rating since 1999. The reasoning is an increase of debt-related risk to China’s overall financial stability, according to Fitch’s release:
“Credit has grown significantly faster than GDP since 2009. China experienced the second-fastest expansion of credit in real terms, behind only Qatar, between end-2009 and end-June 2012. The stock of bank credit to the private sector was the third-highest of any Fitch-rated emerging market…Fitch believes total credit in the economy including various forms of "shadow banking" activity may have reached 198% of GDP at end-2012, up from 125% at end-2008.”

Still, for China, the Fitch outlook is set at “stable.” Granted, the agency noted this could all change with a steep and surprising downturn or, perhaps more poignantly, increased volatility among neighbors in the region, whether directly or indirectly involving China.

“The ratings assume there is no significant deterioration of geopolitical risk, for example a conflict between China and Japan or an outbreak of war on the Korean peninsula,” Fitch noted.

-Brian Shappell, CBA, NACM staff writer

As has been noted many times by NACM and FCIB, commerce in the Middle East is a very intriguing and potentially lucrative pursuit for companies. However, cultural and banking differences, not to mention general unfamiliarity, has rendered some credit department afraid to extend terms to businesses there in part because they don’t have feet on the ground, so to speak. The Dubai Chamber of Commerce and Industry believes businesses in the UAE should capitalize on that and market such expertise, even if the rollout of any widespread effort may be limited…for now. It's a development Western-based businesses should potentially monitor.

A new report from the Dubai Chamber, noting that Islamic Finance is expected to expand globally to about $2 trillion (USD) by 2015, urges business there to export their expertise in things like Middle Eastern business practices and, specifically, how Sharia Law can affect business dealings with those who are complaint. The first wave of a potentially widespread effort of focus would be on companies in regions where significant Muslim population already (Turkey, parts of Southeast Asia, etc.). Still, it would almost surely set the stage for more services to emanate from the Middle East designed for businesses in traditional, Western economic powers as well.

“Dubai banks are potentially well positioned to harness organic growth in these markets where Islamic products can appeal to the predominantly Muslim indigenous population,” the Chamber noted in its release about the study. “However, to compete with conventional international institutions, Dubai’s Islamic finance sector must scale and breach the critical mass required to make products feasible.”

The study also, importantly, noted that the there is a growing young population that still abides by Sharia law that has garnered significant increases in income in recent years.

-Brian Shappell, CBA, NACM staff writer